~~June~~OMB ~~30,~~APPROVAL ~~December~~OMB ~~31,~~Number: ~~2004 2003~~ 3235-~~----------~~0070 ~~------------ Participating Insured Mortgage Investments ("PIMIs")(Note 2)~~Expires: ~~Insured~~January ~~mortgages $26~~31,~~150,977~~ ~~$26,402,701~~2008 ~~Additional~~Estimated ~~Loans~~average ~~6,880,000~~burden ~~6,880,000~~hours ~~Participating~~per Insured Mortgages ("PIMs")(Note 2) 7,834,147 7,865,941 Mortgage-Backed Securities ("MBS")(Note 3) 3,240,296 3,930,944 ----------- ----------- Total mortgage investments 44,105,420 45,079,586 Cash and cash equivalents 4,018,939 5,454,067 Interest receivable and other assets 386,495 399,184 Prepaid acquisition fees and expenses, net of accumulated amortization of $1,967,667 and $1,861,827, respectively 223,455 329,295 Prepaid participation servicing fees, net of accumulated amortization of $642,102 and $605,866, respectively 88,272 124,508 ----------- ----------- Total assets $48,822,581 $51,386,640 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities $ 55,046 $ 183,379 ----------- ----------- Shareholders' equity (Note 4)response: Common stock, no par value; 25,000,000 Shares authorized; 18,371,477 Shares issued and outstanding 48,592,605 51,067,705 Accumulated comprehensive income 174,930 135,556 ----------- ----------- Total Shareholders' equity 48,767,535 51,203,261 ----------- ----------- Total liabilities and Shareholders' equity $48,822,581 $51,386,640 =========== ===========192.00

For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------------- ------------------------------ 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Revenues: Interest income - PIMs and PIMIs: Basic interest $ 578,698 $ 1,086,404 $ 1,159,791 $ 2,305,857 Additional Loan interest 120,400 165,620 240,800 277,807 Participation interest -- -- 136,494 2,311,018 Interest income - MBS 53,783 276,301 104,745 493,530 Interest income - cash and cash equivalents 9,871 58,399 21,772 166,760 ------------ ------------ ------------ ------------ Total revenues 762,752 1,586,724 1,663,602 5,554,972 ------------ ------------ ------------ ------------ Expenses: Asset management fee to an affiliate 82,083 165,106 164,961 337,763 Expense reimbursements to affiliates 64,465 65,220 176,194 173,930 Amortization of prepaid fees and expenses 71,038 198,642 142,076 532,674 General and administrative 78,489 91,548 164,890 205,755 ------------ ------------ ------------ ------------ Total expenses 296,075 520,516 648,121 1,250,122 ------------ ------------ ------------ ------------ Net income 466,677 1,066,208 1,015,481 4,304,850 Other comprehensive income: Net increase (decrease) in unrealized gain on MBS (35,594) (686,888) 39,374 (226,011) ------------ ------------ ------------ ------------ Total comprehensive income $ 431,083 $ 379,320 $ 1,054,855 $ 4,078,839 ============ ============ ============ ============ Basic earnings per Share $ .03 $ .05 $ .06 $ .23 ============ ============ ============ ============ Weighted average Shares outstanding 18,371,477 18,371,477 ========== ==========


UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended	June 30, 2005

	or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from	____________________________ to	____________________________

Commission file number 0-20164

For the Six Months Ended June 30, ------------------------------- 2004 2003 ------------ ------------ Operating activities: Net income $ 1,015,481 $ 4,304,850 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of net premium 20,904 38,859 Amortization of prepaid fees and expenses 142,076 532,674 Changes in assets and liabilities: Decrease in interest receivable and other assets 12,689 189,905 Decrease in liabilities (128,333) (17,814) ------------ ------------ Net cash provided by operating activities 1,062,817 5,048,474 ------------ ------------ Investing activities: Principal collections on MBS 709,118 5,531,651 Principal collections on Additional Loans -- 2,290,000 Principal collections on PIMs and Insured Mortgages 283,518 13,480,142 ------------ ------------ Net cash provided by investing activities 992,636 21,301,793 ------------ ------------ Financing activity: Dividends (3,490,581) (40,417,250) ------------ ------------ Net decrease in cash and cash equivalents (1,435,128) (14,066,983) Cash and cash equivalents, beginning of period 5,454,067 20,450,923 ------------ ------------ Cash and cash equivalents, end of period $ 4,018,939 $ 6,383,940 ============ ============ Supplemental disclosure of non-cash investing activities: Reclassification of investment in a PIMI to a MBS $ -- $ 11,199,153 ============ ============ Non cash activities: Increase (decrease) in unrealized gain on MBS $ 39,374 $ (226,011) ============ ============


Krupp Government Income Trust II

(Exact name of registrant as specified in its charter)

Massachusetts		04-3073045

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Beacon Street, Boston, Massachusetts		02108

(Address of principal executive offices)		(Zip Code)

(617) 523-0066

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

~~Accumulated~~Indicate ~~Total~~by ~~Common~~check ~~Retained~~mark ~~Comprehensive~~whether ~~Shareholders'~~the ~~Stock~~registrant ~~Earnings~~(1) ~~Income~~has filed ~~Equity~~all ~~------------~~reports ~~------------~~required ~~-------------~~to ~~-------------~~be ~~Balance~~filed atby ~~December~~Section ~~31,~~13 ~~2003~~or $15(d) ~~51,067,705~~of $the --Securities Exchange $Act ~~135,556~~of $1934 ~~51,203,261~~during ~~Net~~the ~~income~~preceding --12 ~~1,015,481~~months ~~-- 1,015,481 Dividends~~ (~~2,475,100)~~or ~~(1,015,481)~~for --such ~~(3,490,581)~~shorter ~~Change~~period that inthe ~~unrealized~~registrant ~~gain~~was onrequired ~~MBS~~to --file --such 39reports),~~374~~ ~~39,374~~and ~~------------~~(2) ~~------------~~has ~~------------~~been subject ~~------------~~to ~~Balance~~such atfiling ~~June~~requirements ~~30,~~for ~~2004~~the $past ~~48,592,605~~90 ~~$ -- $ 174,930 $ 48,767,535 ============ ============ ============ ============~~days.

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x


SEC 1296 (03-05)	Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

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Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-Q, the words “believes,” “anticipates,” “expects,” “plans,” “intends,” “estimates,” “continue,” “may” or “will” (or the negative of such words) and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties, including but not limited to the following: federal, state or local regulations; adverse changes in general economic or local conditions; pre-payments of mortgages; failure of borrowers to pay participation interests due to poor operating results of properties underlying the mortgages; uninsured losses and potential conflicts of interest between the Trust and its Affiliates, including the Trustees. The Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2004, contain additional information concerning such risk factors. Actual results in the future could differ materially from those described in any forward-looking statements as a result of the risk factors set forth above, and the risk factors described in the Annual Report.

The Trust has used forward-looking statements in a number of places in this Form 10-Q, including, without limitation, “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION” and “ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.” The risks and uncertainties described within these sections include, without limitation, those related to investments in real estate; status as a real estate investment trust (“REIT”); capital expenditures and requirements; corporate structure; debt and liquidity needs; federal, state or local regulations; adverse changes in general economic or local conditions; the inability of borrowers to meet financial obligations on additional loans; pre-payments of mortgages; failure of borrowers to pay participation interests due to poor operating results at properties underlying the mortgages; and uninsured losses and potential conflicts of interest between the Trust and its affiliates, including the Berkshire Mortgage Advisors Limited Partnership (the “Advisor”). The Trust has discussed these risks and uncertainties in detail within these sections.

Given the risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements that may be made in this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or other changes.

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KRUPP GOVERNMENT INCOME TRUST II

BALANCE SHEETS


ASSETS

	June 30, 2005		December 31, 2004


Participating Insured Mortgage Investments (“PIMIs”)(Note 2):
Insured mortgages	$	16,168,564	$	25,889,150
Additional Loans		4,600,000		6,880,000
Mortgage-Backed Securities (“MBS”)(Note 3)		2,290,230		2,655,606


Total mortgage investments		23,058,794		35,424,756

Cash and cash equivalents		3,517,285		4,187,417
Due from affiliates (Note 4)		39,595		170,944
Interest receivable and other assets		226,332		341,285
Prepaid acquisition fees and expenses, net of accumulated amortization of $0 and $1,545,490, respectively		—		67,190
Prepaid participation servicing fees, net of accumulated amortization of $0 and $515,163, respectively		—		22,397


Total assets	$	26,842,006	$	40,213,989


LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities	$	263,864	$	218,670


Shareholders’ equity (Note 5):
Common stock, no par value; 25,000,000 Shares authorized; 18,371,477 Shares issued and outstanding		26,492,194		39,856,656

Accumulated comprehensive income		85,948		138,663


Total Shareholders’ equity		26,578,142		39,995,319


Total liabilities and Shareholders’ equity	$	26,842,006	$	40,213,989

The accompanying notes are an integral
part of the financial statements.

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KRUPP GOVERNMENT INCOME TRUST II

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


	For the Three Months Ended June 30,						For the Six Months Ended June 30,

	2005			2004			2005			2004


Revenues:
Interest income - PIMs and PIMIs:
Basic interest	$	276,336		$	578,698		$	657,315		$	1,159,791
Additional Loan interest		80,500			120,400			187,600			240,800
Participation interest		—			—			1,720,525			136,494
Interest income - MBS		41,539			53,783			85,301			104,745
Interest income – cash and cash equivalents		24,669			9,871			52,054			21,772


Total revenues		423,044			762,752			2,702,795			1,663,602


Expenses:
Asset management fee to an affiliate		43,031			82,083			100,331			164,961
Expense reimbursements to affiliates		188,672			64,465			379,863			176,194
Amortization of prepaid fees and expenses		35,834			71,038			89,587			142,076
General and administrative		54,988			78,489			105,030			164,890
Operating expense limitation (Note 4)		(39,595	)		—			(39,595	)		—


Total expenses		282,930			296,075			635,216			648,121


Net income		140,114			466,677			2,067,579			1,015,481

Other comprehensive income:

Net increase (decrease) in unrealized gain on MBS		(14,965	)		(35,594	)		(52,715	)		39,374


Total comprehensive income	$	125,149		$	431,083		$	2,014,864		$	1,054,855


Basic earnings per Share	$	.01		$	.03		$	.11		$	.06


Weighted average Shares outstanding		18,371,477						18,371,477

The accompanying notes are an integral
part of the financial statements.

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KRUPP GOVERNMENT INCOME TRUST II

STATEMENTS OF CASH FLOWS


	For the Six Months
	Ended June 30,

	2005			2004

Operating activities:
Net income	$	2,067,579		$	1,015,481
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of net premium		5,160			20,904
Amortization of prepaid fees and expenses		89,587			142,076
Changes in assets and liabilities:
Decrease in interest receivable and other assets		114,953			12,689
Decrease in due from affiliates		131,349			—
Increase (decrease) in liabilities		45,194			(128,333	)


Net cash provided by operating activities		2,453,822			1,062,817


Investing activities:
Principal collections on MBS		307,501			709,118
Principal collections on Additional Loans		2,280,000			—
Principal collections on PIMs and Insured Mortgages		9,720,586			283,518


Net cash provided by investing activities		12,308,087			992,636


Financing activity:
Dividends		(15,432,041	)		(3,490,581	)


Net decrease in cash and cash equivalents		(670,132	)		(1,435,128	)

Cash and cash equivalents, beginning of period		4,187,417			5,454,067


Cash and cash equivalents, end of period	$	3,517,285		$	4,018,939


Non cash activities:
(Decrease) increase in unrealized gain on MBS	$	(52,715	)	$	39,374

The accompanying notes are an integral
part of the financial statements.

-5-

KRUPP GOVERNMENT INCOME TRUST II

NOTES TO FINANCIAL STATEMENTS


1.	Accounting Policies

	Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in this report on Form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. However, in the opinion of Berkshire Mortgage Advisors Limited Partnership (the “Advisor”), which is the advisor to Krupp Government Income Trust II (the “Trust”), the disclosures contained in this report are adequate to make the information presented not misleading. See Notes to Financial Statements in the Trust’s Form 10-K for the year ended December 31, 2004 for additional information relevant to significant accounting policies followed by the Trust.

	In the opinion of the Advisor of the Trust, the accompanying unaudited financial statements reflect all adjustments (consisting primarily of normal recurring accruals) necessary to present fairly the Trust’s financial position as of June 30, 2005, its results of operations for the six months ended June 30, 2005 and 2004, and its cash flows for the six months ended June 30, 2005 and 2004.

	The results of operations for the six months ended June 30, 2005 are not necessarily indicative of the results which may be expected for the full year. See Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report.

2.	PIMIs

	At June 30, 2005, the Trust’s remaining PIMI, including the Additional Loan, had a fair value of $20,854,581 and gross unrealized gains of $86,017. Fair value assumes that the insured first mortgage of the Fannie Mae MBS portion of the remaining PIMI could be sold at prices equal to the amounts being realized by MBS with similar interest rates. Fair value includes the current carrying value of the Additional Loans. Fair value does not include any value for the participation features. The remaining PIMI was scheduled to mature in 2010. On July 11, 2005, the Trust issued a call to the borrower to accelerate the Lakes at Vinings Apartments PIMI of the $16,168,564 First Mortgage and the $4,600,000 Additional Loan. As a result of the call, both the PIMI and the Additional Loan are payable by January 1, 2007 under the terms of the loan document. At June 30, 2005 the remaining PIMI within the Trust’s portfolio was not delinquent as to principal or interest.

	Upon the repayment of the PIMI, including the Additional Loan, the Trust will sell its remaining MBS portfolio and begin the process of winding up its business. In connection therewith, the Trust will change its basis of accounting from the going-concern basis to the liquidation basis of accounting. The liquidation basis of accounting will then require that remaining assets and liabilities be stated at their net realizable value and that estimated costs of liquidating the Trust be provided to the extent they are reasonably determinable.

	During the six months ended June 30, 2005, the Trust received a prepayment of the Martin’s Landing Apartments PIMI and the Additional Loan note. On March 1, 2005 the Trust received $2,280,000 of Additional Loan principal and received $1,742,959 of interest, which included $1,639,221 of Participating Appreciation Interest, $79,800 of unpaid Additional Loan interest and $23,938 of Participating Income Interest. On March 25, 2005, the Trust received a prepayment of the Martin’s Landing Apartments PIMI for $9,575,484. On March 31, 2005, the Trust paid a special dividend of $0.74 per share for the proceeds received.

3.	MBS

	At June 30, 2005 the Trust’s MBS portfolio had an amortized cost of $2,204,282 and gross unrealized gains of $85,948. The MBS portfolio has maturities ranging from 2008 to 2031.

4.	Operating Expense Limitation

	Per Article VI, Section 5 of the Declaration of Trust, the total annual operating expenses of the Trust may not exceed the greater 2% of the average invested assets of the Trust or 25% of the Trust’s net income. These tests are calculated each quarter by the Advisor based on the prior twelve months of activity.

Continued

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KRUPP GOVERNMENT INCOME TRUST II

NOTES TO FINANCIAL STATEMENTS, Continued


4.	Operating Expense Limitation, continued

	In order for the Trust to be in compliance with this requirement as of June 30, 2005, the Advisor is required to refund $39,595 of the Trust’s operating expenses for the twelve months ended June 30, 2005. This amount was recorded as Due from Affiliates on the accompanying financial statements and was repaid on July 25, 2005 by the Advisor. The Advisor refunded $170,944 of the Trust’s operating expenses for the twelve months ended September 30, 2004 on February 23, 2005.

5.	Changes in Shareholders’ Equity

	A summary of changes in Shareholders’ equity for the six months ended June 30, 2005 is as follows:


	Common Stock			Retained Earnings			Accumulated Comprehensive Income			Total Shareholders’ Equity


Balance at December 31, 2004	$	39,856,656		$	—		$	138,663		$	39,995,319

Net income		—			2,067,579			—			2,067,579

Dividends		(13,364,462	)		(2,067,579	)		—			(15,432,041	)

Change in unrealized gain on MBS		—			—			(52,715	)		(52,715	)


Balance at June 30, 2005	$	26,492,194		$	—		$	85,948		$	26,578,142

-7-


Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the financial statements and accompanying notes contained in the Trust’s 2004 Annual Report on Form 10-K and in this report on Form 10-Q.

Certain statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report on Form 10-Q constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Trust’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, federal, state or local regulations; adverse changes in general economic or local conditions; the inability of the borrower to meet financial obligations on Additional Loans; pre-payments of mortgages; failure of borrowers to pay participation interests due to poor operating results at properties underlying the mortgages; uninsured losses and potential conflicts of interest between the Trust and its Affiliates, including the Advisor.

Liquidity and Capital Resources

At June 30, 2005 the Trust had liquidity consisting of cash and cash equivalents of approximately $3.5 million, as well as the cash inflows provided by the remaining PIMI, MBS and cash and cash equivalents. The Trust may also receive additional cash flow from the participation features of its remaining PIMI. The Trust anticipates that these sources will be adequate to provide the Trust with sufficient liquidity to meet its obligations, including providing dividends to its investors.

The most significant demand on the Trust’s liquidity is the quarterly dividend paid to investors of approximately $919,000, which represents the current quarterly dividend rate of $0.05 per share. Dividends are funded by interest income received on the remaining PIMIs, MBS and cash and cash equivalents, net of operating expenses, and the principal collections received on its remaining PIMIs and MBS. The portion of dividends funded from principal collections reduces the capital resources of the Trust. As the capital resources of the Trust decrease, the total cash flows to the Trust will also decrease which may result in periodic adjustments to the dividends paid to the investors.

The Advisor periodically reviews the dividend rate to determine whether an adjustment is necessary based on projected future cash flows. The current dividend rate is $0.05 per share per quarter. The Trustees, based on the Advisor’s recommendations, generally set a dividend rate that provides for level quarterly distributions. To the extent quarterly dividends do not fully utilize the cash available for distribution and cash balances increase, the Trustees may adjust the dividend rate or distribute such funds through a special dividend.

In addition to providing guaranteed or insured monthly principal and interest payments from the insured first mortgage or Fannie Mae MBS portion of a PIMI, the Trust’s investments in the remaining PIMI also may provide additional income through the interest on the Additional Loan portion of the PIMI as well as participation interest based on operating cash flow and increase in the value realized upon the sale or refinance of the underlying properties. However, these payments and collection of the Additional Loan principal are neither guaranteed nor insured and depend on the successful operations of the underlying properties.

Through the six months ended June 30, 2005, the Trust received the first installment of Additional Loan interest due in 2005 from its remaining PIMI investments.

The Trust received participation interest based on cash flow generated by property operations from two of its investments during the six months ended June 30, 2005. The Lakes paid $57,366, and in addition, the Trust received and recognized participation interest related to the Martin’s Landing Additional Loan payoff (see below).

On July 11, 2005, the Trust issued a call to the borrower to accelerate the Lakes at Vinings Apartments PIMI of the $16,168,564 First Mortgage and the $4,600,000 Additional Loan. As a result of the call, both the PIMI and the Additional Loan are payable by January 1, 2007 under the terms of the loan document.

Upon the repayment of the PIMI, including the Additional Loan, the Trust will sell its remaining MBS portfolio and begin the process of winding up its business. In connection therewith, the Trust will change its basis of accounting from the going-concern basis to the liquidation basis of accounting. The liquidation basis of accounting will then require that remaining assets and liabilities be stated at their net realizable value and that estimated costs of liquidating the Trust be provided to the extent they are reasonably determinable.

In 2005, the Trust received a prepayment of the Martin’s Landing Apartments PIMI and the Additional Loan note. On March 1, 2005 the Trust received $2,280,000 of Additional Loan principal and received $1,742,959 of interest, which included $1,639,221 of Participating Appreciation Interest, $79,800 of unpaid Additional Loan interest and $23,938 of Participating Income Interest. On March 25, 2005, the Trust received a prepayment of the Martin’s Landing Apartments PIMI for $9,575,484. On March 31, 2005, the

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Trust paid a special dividend of $0.74 per share for the proceeds received.

Whether the operating performance of any of the remaining properties will provide sufficient cash flow from operations to pay either the Additional Loan interest or participation interest will depend on factors that the Trust has minimal control over. Should the properties be unable to generate sufficient cash flow to pay the Additional Loan interest, it would reduce the Trust’s distributable cash flow and could affect the value of the Additional Loan collateral.

There are contractual restrictions on the prepayment of the remaining PIMI. During the first five years of the investment, borrowers are generally prohibited from repayment. During the second five years, the PIMI borrowers can prepay the insured or guaranteed mortgage and the Additional Loan by satisfying the Preferred Return obligation. The participation features and the Additional Loan are neither insured nor guaranteed. If the prepayment of the remaining PIMI results from the foreclosure on the underlying property, an insurance claim or under a guarantee, the Trust generally would not receive any participation interest or any amounts due under the Additional Loan. At this time, the Trust does not expect the remaining PIMI to be subject to any foreclosure action or an insurance or guarantee claim.

The Trust will have the option to call the remaining PIMI during 2005 for an accelerated maturity in 2006 in accordance with the loan documents. The Advisor will determine the merits of exercising the call option for the remaining PIMI as economic conditions warrant. Such factors as the condition of the asset, local market conditions, the interest rate environment and available financing will have an impact on these decisions.

Critical Accounting Policies

The Trust’s critical accounting policies relate to revenue recognition related to the Trust’s PIMI investments, impaired mortgage loans, amortization of Prepaid Fees and Expenses and the carrying value of its MBS. The Trust’s policies are as follows:

The Trust accounts for its MBS portion of a PIMI investment in accordance with the Financial Accounting Standards Board’s Statement 115, “Accounting for Certain Investments in Debt and Equity Securities” (“FAS 115”), under the classification of held to maturity as these investments have a participation feature. As a result, the Trust would not sell or otherwise dispose of the MBS. Accordingly, the Trust has both the intention and ability to hold these investments to expected maturity. The Trust carries these MBS at amortized cost. The insured mortgage portion of the Federal Housing Administration (“FHA”) PIMI is carried at amortized cost. The Trust holds these mortgages at amortized cost since they are fully insured by the FHA. The Additional Loans are carried at amortized cost unless the Advisor believes there is an impairment in value, in which case a valuation allowance is established in accordance with FAS 114 “Accounting by Creditors for Impairment of a Loan” and FAS 118 “Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures”. The Trust, in accordance with FAS 115, classifies its MBS portfolio as available-for-sale. The Trust classifies its MBS portfolio as available-for-sale as a portion of the MBS portfolio may remain after all of the PIMs and PIMIs payoff and it will then be necessary to sell the remaining MBS portfolio in order to close out the Trust. In addition, other situations such as liquidity needs could arise which would necessitate the sale of a portion of the MBS portfolio. The Trust carries its MBS at fair market value and reflects any unrealized gains (losses) as a separate component of Shareholders’ Equity. The Trust amortizes purchase premiums or discounts over the life of the underlying mortgages using the effective interest method.

Basic interest is recognized based on the stated rate of the Department of Housing and Urban Development (“HUD”) Insured Mortgage loan (less the servicer’s fee) or the coupon rate of the Fannie Mae MBS. The Trust recognizes interest related to the participation features when the amount becomes fixed and the transaction that gives rise to such amount is finalized, cash is received and all contingencies are resolved. This could be the sale or refinancing of the underlying real estate, which results in a cash payment to the Trust or a cash payment made to the Trust from surplus cash relative to the participation feature. The Trust defers the recognition of Additional Loan interest payments as income to the extent these interest payments are from escrows established with the proceeds of the Additional Loan. When the properties underlying the PIMIs generate sufficient cash flow to make the required Additional Loan interest payments and the Additional Loan value is deemed collectible, the Trust recognizes income as earned and commences amortizing deferred interest amounts into income over the remaining estimated term of the Additional Loan. During periods where mortgage loans are impaired the Trust suspends amortizing deferred interest.

Impaired loans are those Additional Loans for which the Advisor believes the collection of all amounts due in accordance with the contractual terms of the loan agreement is not likely. Where necessary, impaired loans are measured based on the fair value of the underlying collateral net of estimated selling costs. The Trust measures impairment on these loans quarterly. Interest received on impaired loans is generally applied against the loan principal.

Prepaid fees and expenses represent prepaid acquisition fees and expenses and prepaid participation servicing fees paid for the acquisition and servicing of PIMIs. The Trust amortizes prepaid acquisition fees and expenses using a method that approximates the effective interest method over a period of ten to twelve years, which represents the estimated life of the underlying mortgage. The

-9-

prepaid participation servicing fees are amortized using a method that approximates the effective interest method over a ten-year period, beginning at final endorsement of the loan if a HUD-insured loan and at closing if a Fannie Mae loan. Upon the repayment of a PIMI, any unamortized acquisition fees and expenses and unamortized participation servicing fees related to such loan are expensed.

Results of Operations

The Trust’s net income decreased during the three months ended June 30, 2005 as compared to the three months ended June 30, 2004 primarily due to decreases in basic interest on PIMs and PIMIs and Additional Loan interest and an increase in expense reimbursements to affiliates. The decrease was partially offset by the operating expense limitation adjustment and by decreases in asset management fees, amortization expense and general and administrative expenses. Basic interest on PIMs and PIMIs decreased primarily due to the Mill Pond II payoff in December 2004 and the Martin’s Landing payoff in March 2005. Additional Loan interest decreased due to the payoff of the Martin’s Landing Additional Loan in March 2005. Expense reimbursements to affiliates increased due to a change in the cost of services provided to the Trust in 2005. In the second quarter of 2005, the operating expenses of the Trust were decreased in order for the Trust to be in compliance with the annual operating expenses limitation test as defined in the Declaration of the Trust. Asset management fees decreased due to the decrease in the Trust’s investments as a result of principal collections and payoffs. Amortization expense decreased as a result of the full amortization of the remaining prepaid fees and expenses on the PIM and PIMI prepayments in 2004. General and administrative expenses decreased primarily due to the cancellation of the Dean Witter monitoring service in 2005.

The Trust’s net income increased during the six months ended June 30, 2005 as compared to the six months ended June 30, 2004 primarily due to an increase in participation income and a decrease in asset management fees. The increase was partially offset by a decrease in basic interest on PIMs and PIMIs and an increase in expense reimbursements to affiliates. Participation interest increased due to the Martin’s Landing payoff in March 2005. Basic interest on PIMs and PIMIs decreased primarily due to the Mill Pond II payoff in December 2004 and the Martin’s Landing payoff in March 2005. Expense reimbursements to affiliates increased due to a change in the cost of services provided to the Trust in 2005.

Off Balance Sheet Arrangements

The Trust has no off balance sheet arrangements as described in Item 303(a)(4)(ii) of Regulation S-K and did not have any such arrangements during the period covered by this report on Form 10-Q.

Contractual Obligations

The Trust has no contractual obligations as contemplated by Item 303(a)(5) of Regulation S-K and did not have any such arrangements either during the period covered by this report on Form 10-Q or during the Trust’s most recent completed fiscal year.


Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Assessment of Credit Risk

The Trust’s investments in insured mortgages and MBS are guaranteed and/or insured by Fannie Mae, FHLMC, the Government National Mortgage Association (“GNMA”) and HUD, and therefore, the certainty of their cash flows and the risk of material loss of the amounts invested depends on the creditworthiness of these entities.

Fannie Mae is a federally chartered private corporation that guarantees obligations originated under its programs. FHLMC is a federally chartered corporation that guarantees obligations originated under its programs. These obligations are not guaranteed by the U.S. Government or the Federal Home Loan Bank Board. However, Fannie Mae and FHLMC are two of the largest corporations in the United States, and both have significant experience in mortgage securitizations. In addition, their MBS carry the highest credit rating given to financial instruments. GNMA guarantees the full and timely payment of principal and basic interest on the securities it issues, which represents interest in pooled mortgages insured by HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by the full faith and credit of the U.S. Government.

Collection of the principal and interest of the Additional Loans and interest on the participation features have risks similar to those associated with higher risk debt instruments, including: reliance on the owner’s operating skills, ability to maintain occupancy levels, control operating expenses, ability to maintain the properties and obtain adequate insurance coverage. Operations also may be affected by adverse changes in general economic conditions, local conditions, and changes in governmental regulations, real estate zoning laws, or tax laws; and other circumstances over which the Trust may have little or no control.

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On June 30, 2005, the Trust’s investments also include cash and cash equivalents of approximately $3.2 million of Agency paper, which is issued by Government Sponsored Enterprises with a credit rating equal to the top rating category of a nationally recognized statistical rating organization.

Interest Rate Risk

The Trust’s primary market risk exposure is to interest rate risk, which can be defined as the exposure of the Trust’s net income, comprehensive income or financial condition to adverse movements in interest rates. At June 30, 2005, the Trust’s remaining PIMI and MBS comprise the majority of the Trust’s assets. Decreases in interest rates may accelerate the prepayment of the Trust’s investments. Increases in interest rates may decrease the proceeds from a sale of the MBS. The Trust does not utilize any derivatives or other instruments to manage this risk as the Trust plans to hold all of its PIMI investment to expected maturity. It is expected that substantially all of the MBS will prepay over the same time period, mitigating any potential interest rate risk to the disposition value of any remaining MBS.

The Trust monitors prepayments and considers prepayment trends, as well as dividend requirements of the Trust, when setting regular dividend policy. For MBS, the fund forecasts prepayments based on trends in similar securities as reported by statistical reporting entities such as Bloomberg. For the remaining PIMI, the Trust incorporates prepayment assumptions into planning as individual properties notify the Trust of the intent to prepay or as they are scheduled to mature.


Item 4.	CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

As of June 30, 2005, the Chief Executive Officer and the Chief Accounting Officer carried out an evaluation of the effectiveness of the design and operation of the Trust’s disclosure controls and procedures. The Chief Executive Officer and the Chief Accounting Officer concluded that the Trust’s disclosure controls and procedures were effective, as of the date of their evaluation, in timely alerting them to material information relating to the Trust required to be included in this Quarterly Report on Form 10-Q.

(b) Changes in Internal Controls

There were no significant changes in the Trust’s internal controls or in other factors that could significantly affect such internal controls subsequent to the date of the evaluation described in paragraph (a) above.

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KRUPP GOVERNMENT INCOME TRUST II

PART II - OTHER INFORMATION


Item 1.	Legal Proceedings
	None

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	None

Item 3.	Defaults upon Senior Securities
	None

Item 4.	Submission of Matters to a Vote of Security Holders
	None

Item 5.	Other Information
	None

Item 6.	Exhibits and Reports on Form 8-K


(a)	Exhibits

	(31.1)	Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	(31.2)	Chief Accounting Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	(32.1)	Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(32.2)	Chief Accounting Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)	Reports on Form 8-K
	None

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Krupp Government Income Trust II

	(Registrant)


	BY:	/s/ Wayne Zarozny

		Wayne Zarozny
		Treasurer and Chief Accounting Officer of
		Krupp Government Income Trust II.

Date: August 11, 2005

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Filing Compare · KRUPP GOVERNMENT INCOME TRUST-II